The booming digital health market and the elusive trio

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The market is buzzing the latest Rock Health Report Digital health funding for the first half of 2021. The funding is close to 15 billion U.S. dollars, exceeding the total amount for 2020.

Everything is on the rise: deal volume, deal size, M&A activity, IPOs and SPACs. There are signs that the digital transformation of healthcare is in full swing, and it’s time for a carnival like in 1999.

However, the explosive growth of venture capital financing data does not tell us how well all these well-funded startups perform in the market.

The health system is rapidly transforming its healthcare delivery model through online access and patient participation tools, remote monitoring and other virtual care models. Digital transformation leaders are also struggling to solve basic questions: how much to invest in these tasks, who to work with, and how to effectively execute them in multiple ways.

Although COVID-19 has accelerated the transition to digital health, it has also caused a surge in the workload of CI​​O and chief digital officers.

In words Mike Restuccia, CIO of Penn Medicine, PhiladelphiaThe normal situation after COVID-19 looks a lot like the normal situation before COVID-19—plus many other duties and activities.

In addition to traditional IT functions such as infrastructure management and EHR optimization, the post-COVID-19 era has also increased workloads in the form of more “remote”, more digital patient participation, and more remote patient monitoring—all of which are big The improvement is from an IT perspective.

The “adequacy problem” of medical institutions

The digitization of core nursing services has brought unprecedented opportunities for digital health solution providers.The opportunity is large enough to prove that digital health startups have sprung up (more than 5,000 transactions funded since 2010, funded by one estimate).

Some startups are truly innovative category creators. Others compete with other startups by offering similar services. Others focus on smaller and smaller niche markets to differentiate and create value. (Dharma Consulting Company Digital Health Intelligence The database has identified no less than 15 companies that provide digital payment solutions. )

These startups spend a lot of venture capital in advertising, marketing, product development, and customer acquisition.

Today, the health system is reducing its technology footprint and actively integrating its information systems to increase flexibility and cost-effectiveness, using a small number of corporate technology suppliers to meet most of their needs.

They are unwilling to introduce new digital health startups and raise the entry barriers for startups to reduce risk, reduce supplier proliferation, and reduce management costs.

Many health systems go one step further by holding stakes in promising start-ups, thereby making long-term commitments to a few innovative solution providers, while potentially phasing out other existing providers with similar solutions.

As far as digital health startups are concerned, they are trying to stay relevant. The rapid integration of digital health startups pursuing economies of scale and enhancing customer relevance is driving a surge in mergers and acquisitions. Integration is the result of the threat of marginalization, but also the result of the needs of corporate customers.

From large transactions, for example Liongo-Tradoc To a smaller one, for example Grand Rounds-Doctor On Demand, The pursuit of scale and continued relevance has always been the driving factor for digital health companies.

The challenge for leaders in the digital transformation of the health system is to choose among many potential solution providers to establish long-term partnerships, especially when the founders’ teams are small and rely on venture capital funds to maintain their business. Choose among companies.

A trio of digital health solution providers

For digital health companies to succeed, they must grasp three factors: low cost, scale of operation, and service quality.

After Amazon announced the launch of Amazon Care services for virtual primary care and home care in all 50 states in May, it revealed that it needs to hire “Thousands of employees“To expand the service.

This is a challenge that Amazon did not anticipate or underestimate. After promising to provide clinicians with access rights in 60 seconds or less, the scaling issue became a key bottleneck in providing the promised service level.

Apple, another large technology company that has made a deep commitment to the healthcare industry, is also It is said to be struggling, Although for different reasons.

Apple’s consumer-centric healthcare applications, such as sleep monitoring, heart rate indicators, and the recently launched handwashing app (my favorite) are high-quality services, but lack a seamless overall healthcare experience.

Although integrated with patient data in the EHR system, these applications operate as stand-alone solutions. Most importantly, doctors do not necessarily refer to Apple’s Health app data in their patient care, which is an additional factor that will slow down service growth.

Where will digital health startups go? Although the lack of scale and product supply is largely unproven, giants like Amazon can provide services at low cost indefinitely until they win three consecutive championships.

For many digital health startups, there is a shortage of time and funds, although the latest venture capital data is conducive to more mature startups and later financing. These companies have limited options. They provide low-cost services to gain market share and surpass the clock.

Today’s largest digital health company is caught in this severe battle, continuing to lose money in pursuit of market share and growth. When the tech giants cannot show the path to sustainable profitable growth, startups must adopt different survival strategies.

They rely on flexibility and integration to retain existing customers, while using venture capital funds to subsidize new customers, hoping that they can profit from liquidity events or more likely to find an exit for investors.

The digital health solutions market is in an exciting state of rapid growth—at least as measured by the amount of venture capital that flows into the industry. For many start-up company founders, capital flows and astronomical valuations may be exactly what doctors require, providing them with a runway to improve products and build lasting relationships.

For others, this may just be an inevitable delay. It’s hard to say which is which today. The challenges faced by their health system customers have become more complex.

Paddy Padmanabhan is Digital transformation of healthcare-how consumerism, technology and epidemics will accelerate future development. He is the founder and CEO of Dharma Consulting.

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